Retire in style: 8 tips for a stress-free retirement
Simple money-saving tips to ensure you enjoy a stress-free retirement and can experience the finer things during your later years.
Retiring stress-free sounds like a pipedream to most, especially in this current economic climate. The thought of pouring your hard-earned cash into a retirement fund for an old crinkly version of yourself, instead of living lavishly while you’re young is hard to justify.
However, retirement savings don’t have to be a drab affair and a killer to your social life. The key to success is thinking smarter and making your money stretch further.
So, if you want to enjoy a great lifestyle now and still be able to swan around Waitrose in your golden years, we suggest you put a few of these retirement saving tips into practice.
Know what you need
To give you a better idea of how much you need to save into your pension, it pays to work out a financial plan. According to the consumer champion Which, the average amount a retired couple need to cover their household essentials like food, heating and housing is £18,000 a year. Or to enjoy some extras, such as leisure activities and holidays, you’ll need an average of £26,000 a year.
Once you add in the state pension funds, a couple would need defined retirement savings of around £210,000. To put this into context, a couple aged just 20 would need to save £131 a month, while those who start at 30 would need to put aside £198 a month and £338 from 40.
For a clearer idea of how much you need, use our free Retirement Fund Calculator.
Resist your tax-free pension lump sum
The pension reforms of 2015 mean when you reach 55 or 57 (after 2028) you’re entitled to access any amount of money from your pension pot, with 25% of the fund being available tax-free.
Many people often use this opportunity to help pay off their mortgage to support future generations. However, unless you have a proper plan in place, you should refrain from dipping your hand into your retirement savings earlier as you’ll lose the tax advantages that come with pensions. While any interest that the money earns could be subject to income tax.
Purchase the right annuity
Once you retire, you have to decide on what you want to do with your pension fund. If you’re using a defined (aka traditional) contribution scheme for your pension savings, one of the options is to purchase an annuity.
An annuity is a retirement product you can purchase with some or the entirety of your pension pot. When you choose to do this, you’re making an agreement with the provider to pay you a regular retirement income either for the rest of your life or over a fixed period.
Annuities are a good option if you’re worried about outliving your pension income as it gives you a guaranteed income based off various circumstances – such as your health, life expectancy and the amount you deposit.
Before you commit, you need to think about which deal is for you. A fixed-term annuity is a more flexible option, typically lasting around five to ten years. Although this could be risky as you may not find a better deal if the economy is down. In comparison, a lifetime annuity provides you with an income for the rest of your life on a single or joint-life basis. The plus side is that you’ll know where you stand every month, but on the flip side, any remaining funds you leave behind are retained by the provider.
For more details on finding the best annuity deal,
Defer your State Pension
If you’re approaching retirement age and are still feeling as fresh as a Daisy, deferring the date you start taking the State Pension can make a big difference.
The new State Pension rules state that your State Pension amount will increase by 1% for every nine weeks you defer. This works out at just under 5.8% for every full year. So, that’s an extra £5,800 every year added to a £100,000 retirement fund. Not bad!
Increase workplace or personal pension contributions
Committing to seeing more money taken out of your wage packet every month may feel annoying but it’s worth it. Taking advantage of your pension contributions can add real benefits in the form of tax relief.
As an example, if you’re a higher-rate taxpayer and pay £80 into your pension, the government will add an extra £20 – as per the basic rate of 20%. You’ll then be able to claim a further £20 (in England, Wales and Northern Ireland) or £21 (in Scotland) of higher-rate relief through your tax return. This reduces the overall cost to you to just £60 for a £100 gross contribution.
Still with me? Great. The point is, you can get more bang for your buck, so add more.
Invest in a Lifetime ISA (LISAs)
If you’re self-employed and don’t get the benefit of an employer pension contribution, but want to add to your retirement savings and you’ve made the maximum contribution via your private pension, a Lifetime ISA (LISA) might be worth thinking about.
With a LISA, you can put a maximum of £4,000 into it each tax year and the government will pay a juicy 25% bonus in return.
While the maximum bonus you can earn in a tax year is capped at £1,000, a LISA is certainly a better alternative to simply putting your extra income away in a low-interest ISA or current account.
Invest in bonds
The other investment you can make to boost your retirement savings and secure your status as a Waitrose regular is to invest in bonds.
Historically speaking, bonds can be better alternatives to equities as they’re less volatile to market changes. Combing investing in bonds with other types of assets such as equities, cash and property and you’ll be spreading the overall risk.
When you take out a bond, you’re essentially loaning your money to governments and companies that need to raise money for a fixed period. In return, you’ll receive regular interest payments, known as coupons. After the fixed-term finishes, the bond issuer will repay the amount paid and stop paying any interest.
However, these are not risk-free and there’s always a chance you won’t receive the money you initially invested at the end. So, it’s worth doing your homework before you take the plunge.
Get some help
Knowing how much pension you need and finding smarter ways of making your money work a little harder for you isn’t easy. Whether you’re a youthful 20 or a young 50, it’s never too early or late to start planning for retirement.
At Simpson Financial, we offer impartial advice on retirement savings designed to help you live a stress-free retirement. To find out more, get in touch with our Leamington Spa team today on.
